5/01/2008 @ 3:22PM

The Luckiest Guy In The Drug Business

How weird have things gotten in the drug industry? Ask Roger Newton, who led the development of
Pfizer
‘s Lipitor, the world’s biggest drug. Then, 10 years ago, he left to found a biotech and sold it to Pfizer for more than a billion dollars. And now he’s spinning the same biotech back out as a start-up backed with $22.75 million in venture capital to support its work to develop new heart disease drugs that work by boosting the good cholesterol, HDL.

Stranger still, the deal, almost a year in the making, seems to make sense for all involved, including Pfizer
itself.

“I have a vision of wanting to continue the work we started with the first Esperion,” says Newton. “There’s a lot of research and work to be done around HDL. I think the area has a lot of power to find therapeutics to treat cardiovascular disease.”

At Warner-Lambert, where Lipitor was invented, the drug was initially looked upon as a me-too version of Merck‘s
Zocor and almost got mothballed. Newton was among those who pulled for Lipitor. Now it is the best-selling drug ever with $12 billion in annual sales.

Pfizer bought Warner-Lambert in 2000 for $116 billion to get full control of Lipitor. But by that time, Newton had already left and taken several members of the Lipitor team with him. In 1998, he co-founded Esperion Therapeutics, a tiny biotech in Ann Arbor, Mich., to develop another set of promising drugs: proteins that mimicked or improved upon high-density lipoprotein (HDL), the good cholesterol that’s thought to prevent heart attacks by pulling plaque out of the arteries and reducing inflammation.

“That was the heyday of biotech,” says Newton. “You could go out and do an IPO without anything in the clinic. I know because we did it.”

In November 2003, a small trial of one Esperion yielded amazing results. The medicine, a big, sloppy protein that had to be infused with an intravenous line, was a supercharged version of the HDL protein. It had been discovered in people in a small Italian village who had an astoundingly low risk of heart disease. In a small trial, it appeared to clear out artery plaque. (See: The Cleaner.)

A few days before Christmas, Pfizer bought Esperion for $1.3 billion in cash. The move was partly seen as defensive. Pfizer had bet more than $1 billion on an HDL-raising pill that was supposed to become the biggest drug ever and help replace Lipitor when it loses patent protection as soon as 2010.

As a major shareholder in Esperion, Newton profited from the deal. And he stayed at Esperion, which remained as a separate entity in Pfizer’s research arm that worked on protein drugs for heart disease. But the Esperion invented drugs didn’t advance in clinical trials because of manufacturing and other difficulties. And the HDL pill Pfizer was defending, torcetrapib, turned out to increase mortality in a big clinical trial.

Last January, when Pfizer announced plans to cut 8,000 jobs, the 70 people at Esperion were among those that were going to go or move to other Pfizer research sites. The biotech was going to get shuttered. “I was the last person in the building aside from the guard,” says Newton. And then he hatched the plan of re-starting Esperion as a new company. It may or may not keep the old building.

This morning, a press release crossed the wire that Esperion is being spun out. Venture firms Aisling Capital, Alta Partners and Domain Associates, and Arboretum Ventures are putting in $22.75 million. In today’s biotech VC market, that’s a pretty good chunk of change. Pfizer keeps an undisclosed stake in Esperion.

One of the venture capitalists leading the venture round is Dov Goldstein of Aisling Capital, who previously served as chief financial officer of Vicuron, an antibiotic maker Pfizer bought for $1.9 billion. One of Vicuron’s drugs made it to market, but another is stuck in regulatory limbo.

So Pfizer bought a company for a billion bucks and then spun it back out for $23 million? It makes a lot more sense than it sounds, because Pfizer is keeping all those protein drugs that were the reason they bought Esperion in the first place. And the drug giant is getting something it could probably use: a stake in a biotech that could get bought by somebody else, or wind up on the public markets. Esperion gets to keep a small molecule drug that Pfizer had discontinued anyway.

An under-recognized problem for big drug companies is that investors don’t get excited about medicines that would generate billions in stock market value if traded alone. For instance, Pfizer’s cancer drug Sutent has been locked in a long-term duel with Nexavar, from tiny biotech
Onyx Pharmaceuticals
and drug giant
Bayer
, for the kidney cancer market. Both drugs have potential in other cancers, and Nexavar could have some big upside in liver cancer.

Still, Nexavar brought in $371 million last year, compared to $581 million for Pfizer’s Sutent. Onyx only gets half of Nexavar sales. But because investors can bet on Nexavar just by buying Onyx shares, the company has added more than $1 billion in market capitalization over two years. Pfizer’s shares are down 40%–a loss of many billions of dollars in stock market value–over the same time. Whether Sutent has really even factored into the company’s valuation is an open question. The failure of the HDL-raising torcetrapib had a lot more to do with the company’s valuation.

Pfizer’s new R&D chief, Martin Mackay, said in a prepared statement that the Esperion spinout “shows the company is embracing new strategies to refocus its R&D and create value from exited compounds.” He also noted that Pfizer would participate in Esperion’s success, if the company does succeed. Still, it would take a lot of deals like this to move the needle for Pfizer.

One thing is for sure, though. When Roger Newton meets up with any of his buddies at drug industry cocktail parties, he better not complain–about absolutely anything. Right now, he’s the luckiest guy in the pharmaceutical world.